Bitcoin proving to be the magic word when it comes to share prices

In the late 90s all it took was a dot-com in the name, back in the 60s «tronics» was good enough to double a share price. In 2017, the moniker sure to stoke investors’ appetite is any variation of «digital currency.»

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The rising demand for cryptocurrencies

Morgan Stanley analyst James Faucette answers why there is an increasing demand for cryptocurrencies such as Bitcoin.

Take Overstock.com Inc., which added about $US137 million ($175 million) in market cap after announcing the launch of a Securities and Exchange Commission-compliant digital tokens exchange. Thursday’s example: Goldmoney Inc. rose 15 percent after saying it will offer its clients the ability to trade bitcoin and ether and store the assets in auditable and insured vaults.

Betting that cryptocurrencies will ultimately revolutionise the world just as electronics and the internet did, investors are now casting a wide net to try to find the next Amazon.com — with perhaps not enough scrutiny to avoid this era’s Pets.com. One approach for investors who find bitcoin or ether too risky, an alternative is buying shares of publicly-traded companies tied to the sector, said Lisa Ellis, an analyst at Sanford C. Bernstein & Co.

«It’s like betting on the picks and shovels in the middle of a gold rush,» Ellis said in an interview. «It’s a safe and still lucrative area, which is why people get excited about firms doing things like exchanges and vaults. They’re enablers, solving the weak links in the cryptocurrency system.»

Overstock and Goldmoney are examples of companies trying to take cryptocurrencies to the mainstream by building an infrastructure around the sector that allows institutional investors to buy the assets with all the safeguards and protections of trading stocks and bonds. That plan depends on cryptocurrencies maturing enough to become their own asset class, even as eminences of the financial world such as JPMorgan Chase & Co.’s Jamie Dimon and hedge fund billionaire Ray Dalio rail against it.

And it’s not just those two stocks. In June, Nvidia Corp. and Advanced Micro Devices which make hardware used in cryptocurrency mining, rallied as ether surged near $US400 and bitcoin was near a record.

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While there’s an argument to be made that the bets these companies are making are risky, they represent the more tame examples within the wider universe of crypto-endeavors. Take the Wu-Tang Coin, the digital token that’s raising money with the sole purpose of buying and releasing the Wu-Tang Clan album that convicted fraudster Martin Shkreli once spent $US2 million on. Or Lydian, the blockchain-based marketing platform, backed by socialite Paris Hilton.

Companies are pushing to get bitcoin into the mainstream. Photo: Bloomberg

Roy Sebag,chief executive officer and co-founder of Goldmoney, doesn’t want his company and others like Overstock to be put in the same group as some of the startups doing initial coin offerings.

«There’s definitely euphoria, but it’s not the same as the ICOs, where people write a business plan over beers and publish it without following any regulations — that’s where you get the Pets.coms,» Sebag said in an interview. «What the finance community wants to see is legitimate companies, with cash and revenue, going into the crypto space, and it’s rewarding them with higher valuations.»